UT San Diego: New Accelerator Bets on Hardware and Tijuana

HardTech Labs, a new accelerator based in San Diego, follows a familiar concept in tech entrepreneurship: select promising young companies, ply them with mentorship, resources and funding, and hope to see your investment pay off.

But this accelerator is different in two key ways: HardTech Labs is working with companies on both sides of the U.S.-Mexico border, chosen specifically for their ability to leverage the region’s binational resources. Second, they all focus on hardware, the sector that’s making wearable sensors, wireless wellness trackers, smart home hardware — the so-called Internet of things.

HardTech Labs offers its companies two benefits: features of a traditional accelerator (investment and mentorship) and streamlined access to Mexico’s manufacturing resources.

For example, a San Diego company might create and develop a wearable medical device, have the user interface designed by a company in Australia or San Diego, get the device manufactured at an East Tijuana maquiladora, and sell and market it out of San Diego.

When you throw in this binational angle — mixing companies and resources from contiguous countries, and exploiting cross-border entrepreneurship assets — HardTech Labs is treading on new ground.

The accelerator, founded in February, is a joint production of four entities that cater to or invest in startups: Latin American investment fund Origo Ventures, co-working firm Co-Merge Workplace, startup accelerator Ansir Innovation Center, and Tijuana law firm MINK Global.

FabLab San Diego, a digital design and fabrication laboratory that offers entrepreneurs high-tech tools and training, will run the accelerator program.

Diverse mix

Derek Footer, managing partner at Origo Ventures and one of the co-founders, said they want the fund to end up with $10 million to $20 million in investments. SEC regulations prevent him from disclosing how much has been invested so far.

Its beta Class Zero, launched last month, is a diverse mix of firms in the San Diego-Tijuana region:

• CleverPet, based in San Diego, creates brain-boosting consoles for pampered pups. Dogs solve puzzles to earn food, staying entertained while their owners are away or busy.

• CryoMedix, based in San Diego, developed a tool that targets breast tumors through cryoablation, avoiding the need for surgery.

• Owaves is a health- and fitness-focused calendar software designed as a native application for wearable consumer devices.

To join, companies must be less than two years from their launch date, have a functional prototype, have seed funding and/or sales of less than $50,000 in the previous year and meet several other criteria, Footer said. HardTech Labs has not made public which manufacturing contract firms it is working with in Tijuana.

Hardware’s risk

Some of the hardware industry’s most noteworthy or popular consumer products started out of big companies — like Google Glass — but many others were startups. Jawbone’s and Fitbit’s fitness trackers. The Nest “smart” thermostat.

As hardware startups continue to draw venture dollars, accelerators are following in the footsteps of their health care and software brethren. Hardware accelerators or investment funds have sprung up in Silicon Valley, Boston and Pittsburgh. Before HardTech Labs, San Diego had FabLab.

Ben Einstein, managing partner for Bolt.io, a Boston-based fund that specializes in new hardware companies, said it is challenging for accelerators of any sort to turn a profit. The business model is “totally unproven.”

He added that one or two accelerators that he knows of are profitable — including Menlo Park’s well-known Y-Combinator — but they don’t focus on hardware.

Einstein said the path to success for such a venture will depend less on how well the program integrates manufacturing services and more on the caliber of companies it attracts and on how well its mentors nurture these companies before and after manufacturing phases.

“It’s really about, do you have great access to people, and are companies really inclined to be in San Diego? What kind of support do they get, and are you helping make manufacturing happen (with) design for manufacturability, understanding cost and scale …? Do they know about distribution and how to actually sell things to retail or consumers, or network with the customers if it’s B2B?”

Link to Tijuana

Footer said that before he hatched this accelerator, conversations kept rolling around to one question: How to get Mexico’s manufacturing involved in San Diego’s startup economy?

The solution: Don’t just invest in companies on both sides of the border. Provide a pipeline to Tijuana’s contract manufacturers.

While China remains the go-to place for large production runs, Mexico’s appeal becomes apparent with smaller orders like Kickstarter campaigns, which are typically a couple of thousand units, said Allan McAfee, operations manager with FabLab San Diego. In contrast, China’s companies have much-larger minimum order quantity, or MOQs.

“If you’re going to manufacture in China, they’re looking for a MOQ in 100,000 units to make it price-worthy. In Mexico, we can do thousands or hundreds of thousands” of units, he said.

That’s where Tijuana becomes “a little more attractive,” he said. “You can just hop across the border and do your specs a little more easily than you could do it across the Pacific Ocean, in a language you many not speak,” McAfee said. “I’m very confident that given a couple more years, once Mexico’s manufacturing infrastructure starts to take shape, we’ll see more people using that pipeline over China,” particularly for limited run projects.

Southern allure

Royan Kamyar, the founder and CEO of Owaves, said the program’s ties to Mexico were a big part of its appeal. “Jawbone manufactures their wearable devices in Baja California. That was the draw” when he applied to HardTech Labs.

Since then, his focus has shifted from building hardware to developing software for devices. Kamyar, who has M.D. and MBA degrees, is still interested in “making the relationships with the folks in Mexico, learning about the manufacturing scene. … As we grow, we have the flexibility to utilize those resources if and when we need them.”

Having mentors at HardTech Labs with expertise in areas he wants to learn about, Kamyar added, will help him meet his goals.

After generations of tech innovation where companies looked east for manufacturing, HardTech Labs’ has a new message: There’s no place like home.